Prompted by mergers of large banks and a booming local economy, a flock of new banks targeting small-business borrowers has popped up in Madison, Wis.

"There definitely has been a lot of activity in Madison," observed Helge S. Christensen, president of Bankers' Bank, which is based there. "This is a very dynamic market."

First Business Bank opened in 1990, and Monona State Bank in 1991 - a period when the state's largest banks were merging their operations.

Two more banks were opened in 1995 - Middleton Community Bank in February and Capitol Bank in October. Both were formed on the heels of Milwaukee-based Marshall & Ilsley Corp.'s acquisition of Valley Bancorp, which sparked branch consolidations in many Wisconsin communities, including Madison and its suburbs.

The newer banks had the experience of the early 1990s start-ups to bolster their optimism. "The success of the First Business Bank and the success of this bank have reinforced the belief that these banks can do very well," said Earle Edwards, president and chief executive of $95 million-asset Monona State.

Among the institutions that recently have opened offices in Madison is one giant, Minneapolis-based Norwest Corp.

And the latest financial institution to target the Madison small- business market is the proposed Heritage Bank Madison, a branch of Heritage Bank, Janesville, Wis. The bank is a unit of $1.2 billion-asset Johnson International, which owns banks in several states.

Greater Madison, with nearly 400,000 people, including 200,000 in the city itself, is an attractive market for new banks.

The area's unemployment rate is less than 2%, Mr. Christensen noted. The city is home to state and local government offices, the state university's main campus, and many small businesses, including numerous insurance- and computer-related operations. This makes commercial lending a natural for the start-ups.

Furthermore, the area's consumer financial services market is highly competitive, said Jerry Smith, president of $130 million-asset First Business Bank. That's in part because Madison is a strong credit union city and home to the Credit Union National Association.

Mr. Christensen said First Business Bank's focus has been beneficial. "They aren't there to serve every Tom, Dick and Harry," he said, but "they've grown very nicely."

Yet Madison-area bankers' feelings are mixed on how much more bank activity the market will - or should - see. Some banks don't expect or want too much more competition.

"Frankly, I'd be surprised if you saw much more," said Chuck Thieme, president and chief executive officer of $25 million-asset Middleton Community Bank.

The increasing competition is "obviously going to make our challenges bigger," he said, adding, "I'm very positive. Of course, I'd better be."

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